Past perfect, future tense. Does that describe your portfolio? Or are you looking back at annus horribilis and worrying about whether the year ahead can possibly get worse for your investments? Often it seems that the future’s bright only in the world of fiction.
In the real world, the future could mean volatile stock markets, out-of-control currencies, manic mutual funds and the like. Or, of course, it could just mean plain sailing ahead for your portfolio. The point is that the future is difficult to predict.
However, if you’re an expert, you can take an educated guess about what the year ahead has in store. Which is why we asked veterans in six different areas of personal finance to gaze deep into their spreadsheets or crystal balls to see what the coming year holds.
Browse away and experience their distilled wisdom. These may not be the exact answers you are seeking, but we hope they will help you make more informed — and profitable — investments in future.
STOCKS
Since October 2006 the Nifty has risen by close to 50%; despite several corrections and volatile swings the upward trend has remained. Though the rate of wealth creation in the stock market will slow down, there is no likelihood of a sustained downturn as the experts on this page unanimously agree.
Though with global markets increasingly getting integrated, volatility is reality. There is no general strategy that one can adopt to enter the markets at these levels. However, that should not keep you away either.
Even at current levels, if corporate India keeps up with the earnings growth it has posted in the past five to eight years, the Nifty itself could show an annual returns of 15-28%.
Go ahead, start investing, there is nothing called the right time. The oft-repeated, yet worth repeating, principal of stock investing is: it’s the time spent in the markets that matters more than the time of entering the market.
| Get in or get out? If this dilemma is keeping you away from stocks, well, start investing now. Four experts tell you why stocks are still good for creating wealth. |  |  |  |  |
| How long will the bull run last? | This is a long-term bull run with periodic short-term corrections. Good economic fundamentals can sustain relatively higher valuations | Until a 20% correction happens from the peak, a bull run is believed to be intact. We have seen corrections of around 15-18% in the past four years | It’s a long term bull-run (read: a decade) with periodic short-term corrections | The way the markets are behaving, I think this bull run will continue |
| What are the key drivers of the markets right now? | I would say FIIs. We have seen huge liquidity since the last 0.50% cut in interest rates by the US Fed | Definitely FIIs, which by default is encouraging domestic funds and investors | It’s a combination of FIIs, domestic mutual funds and retail investors | Domestic fund houses and definitely FII participation, as they see the long-term growth potential of India |
| What are the favourite sectors/themes right now? | I see strong momentum in select real estate, infrastructure, petrochemical, power and commodity stocks | Infrastructure, especially power, metals and engineering | The entire “core” sector (construction, power, utilities, oil) and the consumption sector (retail, media, telecom, auto) | Infrastructure holds a lot of promise, as does the consumption sector |
| Will the Sensex touch 20000 by March 2008? | I estimate 19000 by March 2008 | I don’t think the index will cross this mark by March | I discourage predicting such numbers. But I believe India’s improving performance will be reflected in stock prices | Though it is not right to predict Sensex numbers, I think it may reach somewhere close to that |
| What is your advice to retail investor? | Investors should choose their entry point carefully, and stay invested for the long term in order to ride the volatility | Stay invested in the stock market (directly or indirectly) unless you have to cash out in order to finance a pre-determined goal | Allocate (80 minus your age) % to equities through at least two “managers”. Invest the rest equally across bullion and debt | To make the most of the bull run, stay invested keeping your risk profile in mind |
Next page: Mutual funds
MUTUAL FUNDS
This is one financial product that saw the most frenzied activity in the past one year.
A new fund was launched almost every month, starting with closed-ended schemes that were popular towards the last quarter of 2006, to global funds that have caught up in the last three months. Rising stock markets also made fixed-maturity plans the darlings of fund houses, with over 800 such plans launched in the past one year.
The recent no-load fund structure is still being debated. In the meantime, investors can look forward to being treated a lot better and offered innovative and bundled products that should keep the frantic growth of funds intact.
| Investments in mutual funds have grown dramatically and experts don’t see the trend slowing down. Here’s their guidance and advice. |  |  |  |  |
| The most significant lesson for investors in the past year | Investing during market corrections. I also think the popularity of systematic investment plans has strengthened | Equities tend to be volatile. Disciplined investors would have benefited from overall market movements | Investors have seen the gains of long-term investing in the stock market through mutual funds | Have a long-term perspective; take short-term moves in stride and do not react to every market movement |
| What can be done to increase retail investor participation? | Awareness of the importance of financial planning is the best way to increase retail participation | Mutual funds have to widen their reach beyond the metros and main cities to mofussil areas; investor education is a must | Promote the awareness of the potential benefits from mutual funds to a wider audience | The industry must educate retail investors on the benefits of investing in stocks through funds |
| The favourite sectors or themes today | Considering the current scenario and the volatility in the market, global funds make sense, as they help in asset diversification | Choose funds based on a well-tailored asset allocation plan. Look for funds with established performance across market cycles | In the next decade, significant investment will be made in infrastructure-related sectors | Global and infrastructure funds are favourites. But investors’ portfolios should include diversified and theme-based funds |
| What can be done to control mis-selling? | Mis-selling is not very high. Both Sebi and Amfi have taken initiatives to control it | As an industry, we have to ensure that advisers are well trained and fully equipped to guide investors in the right manner | Sales of mutual funds through registered financial advisers has kept the interest of investors uppermost | The manner in which funds are sold has improved and misselling has come down significantly |
| Advice to mutual fund investors today | Have a systematic asset allocation approach. Invest through SIPs. It helps average out risks | Have a medium- to long-term view when investing in a growth market, such as the one we are witnessing | Evaluate appetite for risk and potential returns. Returns are a function of risk | Invest in the markets in a systematic and continuous manner and not worry about short-term movements |
Next page: Life insurance
LIFE INSURANCE
The outlook for life insurance sector is as bright as the lamp of life that most insurers use as a logo. With Ulips accepted by most policyholders and the benefits of Ulips proven over the last four years on a sustained bull run, Ulip-holders have only gained.
The popularity of these plans also means that more money is being channelled into the stock markets. Insurance companies are thus indirectly protecting the capital markets by checking volatility.
| Protection, savings, investment...Insurance is increasingly being seen by long-term investors as a promising instrument of wealth creation. | Why have Ulips become the most favoured insurance products? | Is life insurance a good investment instrument now? | What is your advice to retail investors in life insurance? |
 "Fund options on Ulips help every risk profile" | Ulips give customers the dual benefit of longterm savings and life cover. | The recent bullrun has undoubtedly made Ulips more attractive for long-term investors. | Insurance is inherently longterm in nature. So, stay through the whole tenure. |
 "Ulips with guarantees are best suited to riskaverse individuals" | The transparency of Ulips increases policyholders’ confidence | Life insurance is first for protection. It does also offer good savings and investing options | The earlier you take life insurance, the better. Compounding is best achieved by saving early |
 "Insurance instils the habit of long-term systematic savings that other products don’t" | Ulips can be tailored to suit almost all risk profiles. Add the liquidity factor and it is a winner | Insurance variants help individuals achieve long-term financial goals | Long-term savings and investments will help you realise financial goals |
 "Life insurance is all about trust and long-term investing gains" | These plans can fit all risk profiles; the riskaverse will go for the capital guarantees | Life insurance is not just a savings-cum-investment tool. It also helps in financial planning | Insurance should never be equated with short-term financial or stock market instruments |
 "Life insurance allows investment and wealth accumulation to meet changing needs in life" | The built-in asset allocation feature allows free switches between equity and debt | Insurance offers the virtues of pure investment products, though it is primarily for protection | Look for longterm capital appreciation through exposure to the equity markets |
Next page: General insurance
GENERAL INSURANCE
De-tariffing (end of price control) will ensure that retail customers get customised policies in 2008. It is likely that there will be a spate of innovative covers, including, possibly a cover for carpal tunnel syndrome. There are many risks that go uncovered today, which will come under the purview of insurance.
| The stepchild of life insurance in the past, general insurance will grow phenomenally with many new offerings |  |  |  |
| Benefits of de-tariffing for retail investors | Those with lower risk profile pay lower premium for motor insurance. Greater pricing and product freedom from April 2008 | Fall in premiums is the first sign; soon there will be greater flexibility in altering coverage according to need | Premiums are down by 20%; product variations are expanding the choice for consumers |
| Product or service innovations likely in the near future | Wider options in motor insurance like replacement car during claims, and extended warranty | Greater choice of price and policies. The service will get extended to SMS, phone and Net | Product innovations in motor insurance like depreciation waiver, towing service, emergency medical help |
| The category of insurance least understood by retail clients | Insurance-savvy customers understand the dynamics of a policy | The extent of cover; policyholders do not read the exclusions | Claims settlement in health insurance leads to occasional differences between the insurer and insured |
| Category that will see most growth and innovation next year | Health | Health and motor | A lot of product bundling (combination of two or three products) will happen |
| Your advice to retail clients | Understand the coverage, exclusions and claims process before buying the policy | Must look into postsales service and gauge what you have bought | In addition to price and coverage, also look at the track record of claims settlement |
Next page: Banking
BANKING
Banking is one financial institution that has changed the most in the past few years, adding products and services at a breakneck pace. Expect the trend to continue with new variants of everything from credit cards to home loans. Mobile phones, along with Internet, will continue to take banking out of the branch.
| Loans will get cheaper, but returns on bank deposits will fall too. Banks will continue to offer much more than just savings. |  |  |  |
| Do you expect interest rates to fall in the next 6 months to a year? | Interest rates may fall 0.25-0.50 percentage points in the next six months | I see interest rates heading south | The rate correction has already started and there are strong indications of further cuts |
| Should somebody looking for a home loan wait for a few months? | Instead of waiting for a further drop in home loan rates, go for a floating rate loan | Since most home loans are floating rate, it does not really matter. The decision should be based on price | Rates are fairly competitive compared to 4 years ago. Variable rate loans are free of risk from future falls |
| Where do you expect 1-year FD rate to be by March 2008? | I think rates will be in the 8-9% range | I would say about 8-9% | Can’t say, but not as high as it is now |
| Why should investors consider bank as one-stop financial shop? | Investors trust that banks understand their financial needs best | Banks facilitate seamless transactions across products | Banks have the advantage of information symmetry that helps provide timely accurate information |
| Steps to minimise mis-selling of financial products | Trained staff, aware consumer and better banking regulations | Better regulation of distributors | Better training of sellers in the intricacies of the product and on financial planning |
Next page: Career
CAREER
A recent recruitment survey done for Manpower India by Ace Indicus Market Intelligence, estimates that 0.87 million permanent jobs in the organised/corporate sector, 0.33 million contract staff and 0.62 million jobs in the non-corporate sectors will be created in 2007-8. The hot sectors are IT, ITeS, financial services, telecom, retail, real estate and life sciences. It’s employee’s market, enjoy till it lasts.
| This is one asset class that is unlikely to depreciate. Returns from career across most sectors have been remarkable and will continue to be | Sectors to look out for highest job creation | Sectors that saw highest salary growth last year | Sectors that may see high salary hikes in the coming year | Main determinant of employee performance |
 "While the performing sectors will grow, it is the unorganised sector that will create most jobs" | Retail, financial services, and real estate | Financial services and IT | Financial services and ITeS | Employee potential |
 "Hiring will get tough for sectors sensitive to currency movements" | Retail is a powerhouse of job creation | Corporate, investment banking | Sectors led by performance-driven hikes | Work knowledge |
 "Growth in job creation will continue. Its trickledown effect will be felt in tier II towns" | Hiring in IT & ITeS industries will continue to grow | IT & ITeS | Emerging sectors like legal processes | Criticality of the job |
 "The IT-ITeS sectors are projected to require 50 lakh technology professionals in three years" | Apart from IT & ITeS, retail, aviation, hospitality | Banking and financial services | Banking, financial services & insurance | Skill sets |
 "Specific niches will grow the fastest, as there is a dire shortage of experienced hands in the market" | Retail will overtake other sectors | Financial services, including banking | Investment banking | Talent and training |
